Bose CMO Jim Mollica on The Number One Predictor of Value Creation

29:22Same thing happened with Disney, with ESPN, where they had so much power that the spirit of innovation, the risks, all of those things, they weren't treating it as a portfolio. But cash cow and how about securing the future? Because nothing, no stock runs like this forever. And as you think about that, how do you manage the future? And one of the reasons I left Disney to go to Viacom was to how to infuse a bigger sense of digital within their portfolio, both from a business standpoint and a marketing standpoint. And I was shocked to the level of resistance that I found at evolving the business model there.

30:04You know, you're in trouble when they have like they pulled together a group of Sandinistas, if you will, and said, go figure out the future of TV. Oh, right. Like, like this is this is an issue. And I think I think that evolution, even under the Netflix deal is the right question. Right question. But but the wrong time to ask it. And it should have been a company wide imperative on where are we creating the learning agenda, the test bets. Right. Because to me, again, what decides, you know, creation or or or like the appreciation of an asset or what you destroy in it is asset allocation. It is the number one.

30:45Doing that prudently is the number one predictor of success. So for the audience, enterprise asset value is a consequence of the asset allocation decisions the enterprise makes, again, the thesis of the show, that either accrue to creation or destruction. How you spend not just your money, but your time and your people's time. A hundred percent. And I think their asset allocation went into other things as opposed to a focus on where their revenue streams that they can open up in the future. One of them could have been early on in Netflix before Netflix has really had their, they were sort of in that duel, a little bit streaming.

31:31Not many people are streaming, still sending out the DVDs and they were making this transition. They came to Viacom and asked for our portfolio. And one of the arguments - When you say they asked for the portfolio, what do you mean? They wanted to get the rights to be able to stream and - Put it in the library? Yeah, put it in the library. Stream and put it in the library. I was an advocate of saying, striking a business deal with them that would take less money and we get data back from them because it would inform us. and also to look at this as a marketing channel specifically for the kids and family business.

32:06So if I have Teenage Mutant Ninja Turtles and SpongeBob and Dora in front of people that is high repetition, I'm conditioning them in a flywheel that then will be more likely that they're going to the movie, that they're going to buy the consumer products, that they're going to download the educational games. And so we're going to take advantage of that moment. Well, instead, kind of Netflix today. Yeah. Instead, we maximize the revenue in that moment and did None of that. And then what happened is the very next two-year cycle within that deal is that, thanks, these are all the programs that no one watches.

32:37We only want these three. And if you're not willing to give us, you know, them for this amount of money, we don't want you. Yeah, I mean, I think it goes back to your pointing out the short and the long. If you only play for the short, you fuck the long. And, you know, I had Gary Vee on the show earlier and we talked a bit about kind of the absence of innovation at Apple over the last decade. And yet over the last decade or maybe a little bit more, I can't remember when Steve died, you know, values 10x as measured by stock price market cap. And it's, it's, if, if you're protecting what you have, which is a necessity and not building, I also talked about it with Don McGuire at Qualcomm, right?

33:32Which is if you just, if you're just playing for today, your eye is not on, you know. know you can it's almost like a private equity play you can maximize your portfolio within the moment to look yeah to to to have that valued at its peak by making a lot of short-term decisions and cutting some expenses and innovation right because again like the two things that i think fuel growth or innovation slash r &d and the brand in its broadest i mean that goes back to the drucker quote right the enterprise has you know um two primary create the the job of the enterprise is to create and keep a customer.

34:08Therefore, the two primary functions of the enterprise are innovation and marketing. Everything else he says is just an expense. Totally, totally right. But what did he know? Yeah, just the godfather of modern business theory, right? But as you think about that, I think there are accommodations when people talk about the short term. I think there are investments and bets that you are making in the short term that you need to run the business. You have to secure today, right? This can't be like one of the things it does drive me crazy. And I think sometimes you hear this from the marketing world is, well, you know, we have to play for the long term.

34:43We have to be sure, but you have to secure today. And then you're all of your bets need to make sure that because the results of Apple, I think, if you look at that, if they're not funding, I'm not saying they are aren't, but if they're not funding all of this future, you're not going to see it today. You're not going to see it next year. You're going to start to see that a decade later when the real effects come come to. To your point earlier about compounding, which requires a discipline and a patience and bias towards slow capital that the public markets don't have. And obviously, easier at a company that you're in today or a company like Chris is in, which is privately held.

35:27But there's nothing easy about it. If it was easy, I wouldn't have a show. But there's another side of it. Can I just throw out the other side of it? Look, being private has a tremendous amount of advantages and you can play for the long term. You can make bets that we're going to pay off and compound interest over time. But I do think occasionally, though, you can lose the sense of urgency around the moment of fighting quarter to quarter. You can lose a little bit of that competitive spirit if you do not. because I've worked for a couple of private companies now too. And so in that balance, I think you have to strike the middle.

36:03There's tremendous advantages that really play to the long-term and your strength of a business and being able to go very deep and do things that you wouldn't otherwise be able to do, even in the marketing decisions that we want to make. But I think there's also an element that you have to make sure that you can continue to push urgency and a sense of competitiveness in the marketplace. Well, I think, I think agreeing with you, I think what sometimes gets lost is that playing for today and planning for tomorrow, that's, it's not, as opposed to the thesis of the show, which is it's A or B creation or destruction.

36:49That's not a binary. Yeah. Right. Like today builds for tomorrow. How is that? If you do it right. A hundred percent. But doing it right, of course, is hard. And a lot of companies are trading tomorrow for today. You know, a promotion strategy that drives no incrementality but leads to pantry load and just, you know, screws the next few quarters because everybody bought for this quarter. So you could report a number to the street is not doing your shareholders or stakeholders any value. And destroys your pricing power. Yes. Like one of the things that I'm super excited about is like what we have done with the Bose brand over the last few years has given us incredible pricing power.

37:35So this past year, this past holiday season, a pretty incredibly difficult period for a lot of brands, right? A lot of products like people were concerned about where the world's going, being much more conscious about where they were spending their dollars. we were far less promotional and we really did on a gross margin basis did an incredible job and that that gets back to the brand the promise and and i think people lose sight of that in the financial equation that gross margin and pricing is is absolutely a reflection of the brand as well as it is engineering and and i think in some models that's not always taken into consideration yeah yeah

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41:09what have you learned because you you've been spearheading the luxury group for almost two years right yeah year and a half yeah um what have you learned about the creation of desire doing that, that maybe the earlier parts of your career hadn't taught you? Yeah. Wow. I've learned a ton. I mean, I have really gone to school on everything from like the way products are built to the way that the individual supply chain works and the care and how like the partnerships that you have to create with these other groups in order to deliver the end brand promise. I think, you know, when I, I think this is probably common for a lot of people when you start your career, it becomes very, like very egocentric around like, well, what you do is the most noble of work, right?

42:13And it's the most important piece of the work. And so, you know, I started off as a planner and a strategist and I was in love with the strategy. And, you know, you slowly start to realize that if you're not thoughtful and careful and that strategy doesn't flow to every, bought into and applied by every single aspect of the organization. And, you know, people talk about customer service, of course, all that stuff that's customer facing, sure. But I'm talking about all the stuff behind the scenes. and I think what the luxury business has helped me understand. Sorry, I think you, I want to interrupt you because I don't think you finished your thought, right?

42:56Would you say as a planner, you realize that if the enterprise doesn't embrace it, but I don't think you finished the thought. Where were you going to go? Yeah, so if the enterprise doesn't embrace it, not just understand it, but embrace it and apply it to their work, then you ultimately do not achieve what the intended strategy or the objectives of the strategy, right? It's not enough to get people to parrot it. You actually have to act that way. And it can't just be consumer facing. It means everybody in that organization that has any role in any way, shape or form, the finance group, the accountants need to understand that when you're making an investment, there may not be a linear connection between X and Y that they want.

43:39And they have to trust some of the business models that you are providing to them, that they're going to get there. The suppliers that you're working with need to understand why that particular copper matters most, or you need to source gold to fill in the cracks of the copper wiring so there literally is no electronic distortion at all detectable by machines. It's a lot more work in time. That flows all the way through what I learned as I've taken this over is that this has removed this artificial barrier between sort of strategy, like the marketing and brand strategy and the ultimate application and end results of the business across every single silo.

44:28as I listen to you, it feels I'm a luxury consumer. I've done some luxury brand work in my past. Is it easier to make that case in luxury because of the price you're charging, because of the margins you're commanding, because of the reputation and the trust and the quality you have to uphold, right? Right. So, A, is it easier? And then kind of as a follow up, if you were to go into a commodity business tomorrow, right, where your competitive set is six, one, half dozen of another, what lesson would you bring from luxury? great follow-up um okay let me start with the first one i don't think it's easier i think it's different i think the expectations are so extraordinary right right that that that at times you know if you spend 250 000 on an audio system it better be magical sure shit should right and And I think that that level, that bar, it can be uncompromising.

45:52These people were discerning consumers that have a real passion for this. And so therefore, the expectations are through the roof. And so I think you're just dealing with different – finding the best vacuum tubes in the world becomes competitive and difficult because they're used for lots of different things. Right? Making sure that you have a reliable supplier for the finest Italian leather when there are a lot of people that want that finest Italian leather and being able to ensure that it's being manufactured and created in the right way. And handling every house, even think about like the finishing a product and making sure that the climate control of that product and the hand delivery of this product to somebody's home, which could take eight hours to set up, is handled in the right way.

46:39it's just an absurdly high bar so i think it's different i think you'll but let me push a little yeah sure not not on the point that it's different but let me let me say i think it's easier here's why and i don't know i'm playing devil's advocate but it's easier because everybody in the enterprise knows that every one of those things matters and so teaching a cfo or your supply chain person that these decisions, like they get it. But if you're in a commodity business or just maybe even a premium business, maybe going back to our earlier part of our, maybe it doesn't matter as much. And therefore getting the CFO to, as you said earlier, understand that sometimes outcomes are non-linear, positive outcomes are non-linear, feels like a bigger hill to climb.

47:32And you've been in those businesses. Yeah, I think that's fair. But I think, look, there are still economic realities within luxury. Of course. And the consumer is resilient, but not immune. And so to price realities and all the rest. So it's very real. And whether you're public or private within those businesses, there are obligations. And there are annual operating plans and there are commitments that everyone takes very seriously. So there are tradeoffs all the time. There are different levels. And I'd say in some senses, it's harder because if you miss on a bet, you have less levers to pull.

48:09So that has been my experience, which, you know, I'd say cutting the other way, it's very different. And it's it's you your hit rate needs to be better. I think on the premium side, and I think if I look back, it's there's not that I really haven't worked a lot in commodity businesses. I've been lucky enough to work in, you know, high and differentiated IP businesses. businesses. Yeah. Yeah. Yeah. And product is IP. Right. Right. Right. Totally. And I think I've been been lucky enough that like there've been high involvement, passion point categories where people take more time. Right. So you're probably 100 percent right within some commodity businesses where I think it's much more of a challenge.

48:52There's much more day to day trade offs. But I think even in premium businesses and the work I do with Bose, like those discussions are very real on the decisions that we make of, you know, what's the expectation for this consumer as we are, you know, carrying the flag for, you know, rabid music fans and the expectation of this and what is right and what is not. Like even to the materials with our open earbud, it's like the expectation that that thing holds when you're in the worst possible conditions out there is very real. Because if you spent this money and it falls in a, you know, in the sewer, right?

49:28Or it gets crushed by the bus because it fell out of your ears, a big deal. And so for us, those things really matter. And I think I had this discussion with somebody that runs our analytics and they were talking about, but it doesn't show up in the MMM, the media mix model, right? As it shows up in the base. That's my compounding, right? That's my compounding asset valuation. Show up in LTV. Yeah, 100%. But that's a longer protracted metric that I think sometimes people will say, well, that's a moving average over five years or whatever it is. And so therefore, it's harder to justify these things.

50:02But I think when you're looking quarter to quarter on an MMM and you're pointing to the base, you can make that argument. Yeah, I think one could tell that analyst that it is always better to make things that work and don't suck. But that's just me. I'm bringing you to my next meeting. Now, I'm putting you in a commodity business, right? Six, one, half dozen of another. one can argue that brand is even more important in a world where products are parity right because then what differentiates you but what's the lesson you bring forward from luxury i think that if you have a super compelling backstory um i think if you live the backstory and you're true like you're truly in it and go deep in it um you have authority in that space that you could brand successfully and differentiate the ultimate commodity.

50:59I don't know, salt. I think if you focus - I mean, milk did it. Yeah, totally. It's exactly what - 100%. Yeah, that's a better example. Yeah, right? Exactly. If it can work for milk - Yep. It can work for you. That's right, Jeff Goodby. All right, let me ask you a question as we get towards the end of this. You were the first CMO at Bose, right? Yeah. So the company operated for almost 60 years, building one of the most recognized and respected, trusted audio brands in the world on engineering and product alone. Right. Right. So when you walk in as the first person with that title, I'm wondering, I'm wondering what was the argument or rationale that preceded you for why the role was needed?

51:49and does it is there anything the audience should take away from it you know this this end of one example about the relationship between product-led value uh creation and and marketing-led value creation yeah it's um not as distinct from product but on top of yeah i mean there are a couple different there are a couple different facets of the answer to this question there's one founder-led companies, which interestingly, I've worked for three. Ralph Lauren, Under Armour, and Bose. I think they very much follow the same pattern of founder finding an unarticulated need, being able to create the story and the backstory around how it came to be.

52:37trying to yeah because i'm wondering what ralph's unarticulated need was the story and backstory like yeah a genius but what was the i mean he was making ties yeah i think his bigger vision was ultimately this this mythology accessible accessible lifestyle like immersion brand i think I think he, in his mind, had these pictures of 40s Hollywood and, you know, romantic notions of, you know, what sort of classic England looked like and the Ivy League backdrops and these, you know, the Wild West and these vignettes that he wanted to tell stories of in his mind, even as he started the business around the time.

53:25I'll tell you what, just a quick story. It's 1994, 1995. I'm working for a sports marketing company that no longer exists called ProServe. And we're going to pitch polo on something. And we go to their offices at 650 Madison. And I walk into these offices with no expectation, whatever, because I wasn't that thoughtful. I doubt that, but okay. was like, I was below, the elevator doors open and you are in Ralph's world. And I had never seen an office like that. I had never seen the physical manifestation and expression of brand in every inch of those however many thousands of square feet. Again, this is 30 odd years ago, blew me away.

54:20And yeah, that guy knows something about story and backstory. He does. The mansion that he has on the Upper West Side with it, right? Upper East 72nd and Madison. Yeah, the mansion. Rhinelander Mansion, I think. Unbelievable immersion into his world. And he was one of the first to do that. And that was a massive undertaking. Experience before anybody used the word. Oh my gosh, yeah. And so, look, I think when you have a founder like that, they know how to tell the story. and captures people's imagination. And sort of what is rewarded is sort of being able to produce and activate against that story, that backdrop, right?

54:58And then as the business gets bigger and more demanding, I think that starts to change. And I think, you know, their disassociation because they're becoming more successful with the normal consumer, their everyday consumer, I think also just the nature of being able to strike lightning twice is really, really hard on those things. And so the business starts to change. And I think there was no difference with Bose. Dr. Bose was, for those that don't know the story, was a professor at MIT. He was celebrating his PhD. He went out and he loved music, loved going to see live music and classical music, went out and bought these incredible speakers, or he thought, brought them home, set them up, listened to them, was super disappointed.

55:41So as a PhD from MIT would do, he broke them down, reverse engineered and came up with these direct reflecting speakers that became the inspiration behind the famous 901s that sounded like a concert hall because they would throw the sound off of the back walls and sort of vibrate throughout the room as opposed to directly hitting you in the face with a direct beam. So I'm saying like I actually understand. Me too. Me too with my engineering background. But the point is that I think as those companies grow, there becomes a moment in time where they have to reexamine what happens to get them to the next level with who is providing the mythology, the backstory, and building upon that incredible foundation that they have.

56:32And so I think what happened with Bose is they started off with great functional expertise. They had a brilliant founder that was also like very progressive with marketing. He started one of the really like popularized direct marketing and the Paul Harvey reads on the old, you know, AM radio. All right, audience, you're going to have to Google that one because most of you won't know it. But crazy. Legend, Paul Harvey. Yes, yes, yes. But like immersive retail experiences that he was having where he was selling in-home systems. um same thing with automotive audio brought that to the cadillac and you know studied that by going into uh going into a dealer and spending two months working with the salespeople to understand what people looked for and buying an automobile once he was no longer involved with the business right a lot of those muscles and in his direction were lost within the company because there are a lot of people that knew how to execute against that vision and i think you know what ended up happening with Bose is the story of a lot of companies is there was a gap and somebody came in with better emotional marketing without functional excellence, maybe punched them directly in the face.

57:45And they sat up and took notice and say, Hey, maybe a better product doesn't always win. And that opened up the door. A better product most definitely does not always win. Yeah. And that opened up the door for somebody like me to, to, to come in and, and try to help restore the legacy. So many questions going through my head in this moment, and I know we're at time. So I want to see if I can just quickly synthesize. Yeah, nah, fuck it. We're going to go to our last question. All right. Last question, player. All right. We end, as the audience knows, every episode asking our guests, my guests, the same question, which is if you had all the power in the world and you could create anything tomorrow or destroy anything tomorrow, what would it be?

58:26and the common instruction is you can answer it however you want. It need not be in a business context. Yeah, there's so many, you know, noble and high-minded things you could say. Look, let me get a shout-out. Don't pretend that you're noble and high-minded. I'm not, I'm not, I'm not. And so this is where we're going to go. I'm going to give a shout-out to my marketing brethren. If I could kill two things right now, God, please. Destroy, destroy. Sorry, destroy, destroy. Let's be on brand, all right? Yes, yes, yes, destroy. I barely established this thing. You're already morphing it. Yeah. Destroyed.

58:59Two things, I would say. One, I would love to destroy the brand versus performance discussion. It's just so tiresome, so played out, so misconstrued. So self-defeating. Yeah. It's just like enough of that conversation and never hear it again. And the meeting cultures. that just the meeting culture, I find that people celebrate how busy they are. It's like how important you are. And I think it is, it is, I'm trying to do my best to break out of that and not go and be included to things. I love that. And - You still want to be invited though. Yeah, exactly. I love the decline. Actually, I took a page from this from some of my Italian colleagues who said, you know, we find ourselves in meetings all day long and the morning is the only time we can get our work done when North America is not at the office.

59:55So I think that's really important. And I think what I want to create is within, there's so much convenience. There's so much, you know, speed and shallowness that to me, I think this element of slow time in creating more space for slow time in the areas that matter to you. If it's making coffee, then you go and you find that coffee maker that matters to you and you take the 20 minutes to craft that as a ritual to you as like centering, right? Almost meditation. If it's making a drink, if it's having a moment with a record, God forbid somebody goes out and has the time to buy an album that drops on a Tuesday like we used to stand in line, come home, put it on, listen to it sequenced, read the liner notes.

1:00:56I think that slow time is the new luxury in pockets where you can fit it. I think that's what I would love to create more of. I mean, you could have gone with World Peace, but you went with Coffee. No, I kid, but I really love that slow time that, I mean, I cherish having, I can't have too little to do. That's my favorite thing. I'll bed rot all day long. You give me a shot at it. God bless you, man. Yeah, slow time. Here's to that. Jim, thanks so much for being with us. Appreciate you. Thanks for having me here. It's been great. All right, man. As we end this episode, consider this. A recent headline in a travel newsletter read, American Airlines CEO Celebrates Taking Away Free First Class Upgrades, Says Customers Will Pay.

1:01:48As an American Airlines loyalist and concierge key member, my reaction was, what the fuck? But the accompanying article explains that American CEO Robert Isom recently told investors at the Bernstein Strategic Decisions Conference that Americans caught up to its competition in selling first class upgrades rather than giving them away, And perhaps, not surprisingly to an investor conference, he was pretty enthusiastic about it. On paper, it's logical. Why give away your most premium product when someone will pay for it, even if what they'll pay is relatively nominal? You're capturing incremental revenue that was otherwise being left on the table.

1:02:27Maybe. But consider that Americans' own strategy identifies its loyalty program as one of four strategic pillars, and that at the same conference, ISOM described it as the thing that holds the rest of the strategy together, saying, quote, everybody wants an American advantage mile. And it's not just a strategic pillar. It's a cash and margin cow that reportedly generates over$7 billion on margins of over 50%. So what fuels this loyalty and its bottom line impacts? People spending tens of thousands of dollars a year on tickets and credit cards because the program rewards their loyalty. And for decades, the single most valuable reward, the reason people chased and maintained elite status, were complementary first-class upgrades.

1:03:11And I speak from experience as a concierge key member, America's highest status level, which means one of the primary reasons customers stayed loyal to and chose American over Delta or United is being methodically dismantled. And the question worth considering is whether this strategic shift will lead to value creation or value destruction? I think the answer depends on the timeline. Near-term, it's revenue. But over years, it may be the thing that unwinds the loyalty behaviors of the company's most loyal and profitable customers. Because the moment a$50 ,000 a year business customer decides that their status no longer has the same privileges, they don't just stop getting upgraded.

1:03:49They start reconsidering the competition. And this is what it looks like when a company optimizes for the transaction at the expense of a relationship, when a decision that seems rational to the revenue management team is actually a marketing decision with compounding consequences that the company may not have understood it was making. The upgrade isn't just a bigger seat and salad, it's the enterprise telling its most valuable customers, we see you, we value your loyalty, and there's a reason to keep choosing us. Selling this for an incremental dollar may proved to be penny-wise and pound-foolish, and buying a first-class seat at a bargain upsell price might just wind up being one of the most expensive discounts in the history of the airline industry.

1:04:33Time will tell, but it's something to consider. Today's episode was produced by Art Chung, Jim Mackle, Manolo Moreno, Brandon McFarlane, and Ashley Futterman from the Vox Media Podcast Network and the Wisdomist Company. Meet Klaviyo, your brand's new best friend. With all your data in one place, Klaviyo knows you and your customers. Its AI agents build campaigns from one prompt and answer questions 24-7. Always on brand, always with your OK. Go to klaviyo.com slash best friends. Support for the show comes from Engine. Running a small business means every dollar has to work hard. But if your team is still booking travel the old way, it's costing you more than you think.

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